Media Helping Obama Reinflate Housing Bubble

Subprime Scandal: In an eerie bit of deja vu, the major media are suddenly gushing warm-and-fuzzy anecdotes of at-risk families who've found new "hope" in easy home-lending programs.

This is how it gets started positive spins about homeownership by pro-government newspapers only to turn later into disaster stories when the artificially created housing boom goes bust.

We know how this "affordable housing" fairy tale ends: Weak homebuyers walk away from their properties; and lenders get stuck with the bad debt, taxpayers with bailouts, and investors with massive losses.

How soon we forget the economic devastation from Washington's last grand social experiment, known as the National Homeownership Strategy. According to the Federal Reserve, the ensuing financial crisis from 2007-09 wiped out $14 trillion in U.S. household net worth — the greatest destruction of wealth in history.

Still, affordable-housing zealots argue too many low-income buyers, particularly minorities, are being shut out of the housing market.

At a recent conference, the Urban Institute made the same reckless arguments for "flexible" lending to promote multicultural housing that it made before the crisis, while continuing to deny any responsibility for the millions of risky subprime loans that went bust.

During the debate over new mortgage rules, the institute lobbied against down-payment requirements, even though equity reduces the risk mortgage loans will default. It got its wish. Borrowers don't have to meet minimum credit scores, either. They can even count welfare and child-support payments as qualifying income.

The Urban Institute's goal, one shared by the Obama administration, is to close the "racial wealth gap." In a just-released study, it points out that black families lost 31% of their wealth between 2007 and 2010, compared with 11% for white families.

Predictably, the New York Times trumpeted the findings last week, claiming "discriminatory lending practices were a factor." As proof, it noted blacks took out a disproportionately high share of subprime mortgages, while neglecting to point out this same demographic tends to default on loans at a disproportionately high rate, regardless of the loan terms — prime, subprime; high cost, low cost; adjustable, fixed doesn't matter.

The point of the Times story was to guilt lenders into giving subprime borrowers a second chance.

Meanwhile, the Los Angeles Times is reporting how this is already happening in California, a state still haunted by the subprime nightmare. Thanks to lenders "venturing back into (the) subprime market," the paper said, former homeowners with bankruptcies and foreclosures are seeing their "dream" restored.

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